What is an Automated Valuation Model?

AVM stands for Automated Valuation Model, which is an online service that provides instant real estate property values to homeowners. AVMs gather information about a particular house from public records, including tax assessments and deeds.

Some AVM companies purchase data from Multiple Listing Services.  MLS data can provide a more accurate picture of comparable properties, detailed sales terms, and information acquired from a prior onsite inspection.

A web visitor curious about their home value can visit one of these sites and enter their email and property address.  In a matter of seconds, the computer program comes up with a home value calculation.

These Automated Valuation Model sites arrive at their figures using mathematical modeling combined with a database to arrive at a home’s value. AVMs are proprietary and do not share what data they use or how much they weigh one dataset over another.

AVMs have become very popular, and more and more sites offer the service.  Although the accuracy of these values is in question, these sites can be a good starting point if you are thinking of selling.

But remember that Automated Valuation Models vary widely depending on the method used, but they can provide helpful information.

Zillow is the biggest and most popular site offering AVMs to consumers. The site is very user-friendly and easy to navigate.  However, even Zillow admits that their:

“Zestimate is not an appraisal, and you won’t be able to use it in place of an appraisal.  It is a computer-generated estimate of the worth of a house today, given the available data.”

source:  Zillow

Some other AVM sites are Eppraisal, Homegain, Homelight, and Redfin.

If you visit these different AVM sites and enter your property address, you will more than likely receive a different home value from each.  Again, the reason for these different values is that each company uses its own mathematical formula, and each may access information from a different source.

Some properties lend themselves to the automatic valuation model.  For example, an area that has large numbers of homes in subdivisions with 500 to 1,000 properties with only three or four models, and there have been a significant number of recent sales, then the AVM estimate on a home more than likely will be more accurate.

However, if you live in a community with about 25 to 50 homes and no recent sales in the last two years, then it is going to be harder for the computer model to value your home.

1. Facts in the public record have errors.
2. Your home is not like others in the neighborhood.
3. Few properties have sold in the community in the last six months.
4. Your home has not been on the market in recent years (decades.)
5. Public records in your area omit important information.
6. The local Real Estate Market is changing rapidly.
7. Online calculations might include short sales and foreclosures.

Some of the information used by these AVMs come from tax records.  This can be a problem because each state handles assessed value differently according to its state laws.  Each state uses different methods to calculate the assessed value and has different reassessment timeframes.

In North Carolina, there is no statewide property tax.  Rather, each of the 100 counties collects property taxes, and each county assesses the property within its boundaries.  By NC law, reassessment must be completed at least every eight years.  Many North Carolina counties do a more frequent reassessment, usually in a four-year cycle.

A home’s assessed value in a county with the eight-year cycle will probably not have much correlation to the home’s present market value. Even a cycle of every four years, would not reflect the current market value if the market has been moving rapidly.

An individual home’s condition is a major factor in its sales price.  The disadvantage of AVMs is they do not take into account the present condition of the property.   Since it is impossible for AVMs to make a physical inspection of the property, the home’s condition in determining a home’s value is not considered in the calculation. The computer models assume that all homes are in average condition.

This might be far from the case.  For example, one home in the same area might have recent updates in painting and new flooring.  One house might have had no recent updates in 20 years and was not well maintained.

Homeowners need to remember that the final sales price of your property will depend upon many factors including the condition of your home, the motivation of the buyers and sellers, and the supply and demand in the local real estate market when the listing enters on the market.

 Contributing Factors to Home Valuation:

1. Neighborhood comps
2. Location
3. Size of home and available space
4. Age and condition
5. Upgrades and updates
6. Local Real Estate Market
7. Economic indicators
8. Interest rates

Only by the homeowner analyzing all of these factors together can they decide on a list price that is in line with the home’s fair market value.

In Real Estate, the buying and selling of homes is a complicated process.  While homeowners have more information available to them than ever before, you still can’t expect an AVM to deliver the final word on your home’s value.   AVM sites can be a good starting point, but their results are only estimates based on a computer model and the data available.

When you are ready to sell your home contact a local Real Estate Agent.  Real Estate agents are skilled professionals with current knowledge of the local real estate market.  They conduct physical inspections and consider important values such as the demand and supply forces, price of similar properties in the community, a home’s current condition, and other factors to provide a home value estimate.